The peak Mises stress that the FEA predicts is nearly 12000 MPa...! Even high-strength steels yield at about 2000 MPa, so you're well above the yield point for most steels known to man... You also have no plasticity defined in your material model, so your model is purely elastic.
Both parts are deformable, as they are meshed with solid brick elements (C3D8R). If you want to model rigid-deformable contact, then you need to model one block as a discrete rigid shell part. Mesh it with R3D4 rigid shell elements. Have a look at the attached CAE file.
Regards
Martin
Martin Stokes CEng MIMechE